Suppose that the current price of a stock is $120 per share with volatility =50% per
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Suppose that the current price of a stock is $120 per share with volatility σ =50% per annum. Suppose further that the risk-free interest rate is 7% per annum and the stock pays no dividend. (a)
What is the price of a European call option contingent on the stock with a strike price of $125 that will expire in 3 months?
(b) What is the price of a European put option on the same stock with a strike price of $118 that will expire in 3 months? If the volatility σ is increased to 80% per annum, then what are the prices of the two options?
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